Problem
Swathmore Clothing Corporation grants its customers 30 days' credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly.
At the end of 2015, accounts receivable were $608,000 and the allowance account had a credit balance of $72,000. Accounts receivable activity for 2016 was as follows:
|
Beginning balance
|
608,000
|
|
Credit sales
|
2,790,000
|
|
Collections
|
(2,653,000)
|
|
Write-offs
|
(56,000)
|
|
Ending balance
|
689,000
|
The company's controller prepared the following aging summary of year-end accounts receivable:
|
Summary
|
|
Age Group
|
Amount
|
Percent Uncollectible
|
|
0-60 days
|
455,000
|
5
|
%
|
|
61-90 days
|
76,000
|
14
|
|
|
91-120 days
|
66,000
|
25
|
|
|
Over 120 days
|
92,000
|
40
|
|
|
Total
|
689,000
|
|
|
Required:
1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year.
2. Prepare the necessary year-end adjusting entry for bad debt expense.
3-1. What is total bad debt expense for 2016?
3-2. How would accounts receivable appear in the 2016 balance sheet?